Accounting for emotions is critical when mapping your financial plan.
A great financial plan needs to fit you financially and emotionally. Having the right plan in place will help make you better prepared for life’s inevitable changes. Private Ocean Wealth Management Principals Sarah Wotherspoon and Chip Pyfer note that as they help clients plan and realize their dreams, emotions about taking risk are an important factor.
“Risk tolerance is your personal perception of risk. Risk capacity is far more quantitative.” says Chip Pyfer, advisor at Private Ocean, a wealth advisory firm based in San Rafael. At the same time, clients may have a wide capacity to take risk but may not be able to do it emotionally. Finding the best portfolio means looking at both of these factors.
How much cash should you hold? Do you pay down your debt? What if the market goes down substantially? There are a variety of questions that need to be considered at an individual level. Private Ocean works with clients to look at their particular situation, their goals, factoring in the emotional aspects as they seek the solution that is the best fit. It is both personal and powerful.
Change is the way of the world. The down markets of 2008 and 2009 had a big emotional impact on investors. “We want to help clients avoid decision risk. When the markets go down, it is that desire to take action by selling to cash or something more conservative at the wrong time,” says Sarah Wotherspoon. The team at Private Ocean worked with concerned clients and revisited the foundation of the financial models that were used in developing their financial plans. That process helped balance the emotions they were experiencing and allowed clients to see the real impact on their portfolios was less that they had perceived.
Wondering if your plan is accounting for both your financial goals and your emotions? For more food for thought, watch this 4 minute video, or click here if you missed part one of our series What Does Money Mean to You? Download our Guide to Happiness to learn more about what to look for in a great relationship with your wealth manager.